No recession in sight, says Treasury

Treasury boss Martin Parkinson has dismissed fears that Australia may be about to topple into recession.

Dr Parkinson says interest rate cuts over the past 18 months are beginning to work, and are also helping the transition away from mining investment.

"We are seeing leading indicators in the housing sector pick-up, we are seeing a pick-up in non-residential construction, and consumption has remained solid," the Treasury secretary told a Senate estimates hearing in Canberra on Thursday.

The Reserve Bank of Australia left the cash rate at an all-time low of 2.75 per cent this week, after steadily reducing it from 4.75 per cent in October 2011.

As mining investment comes off the boil, exports and the broader economy are expected to take up the slack, though Dr Parkinson says the transition is unlikely to be smooth.

The national accounts released on Wednesday showed the economy grew by 0.6 per cent in the March quarter, largely because of strong exports.

Dr Parkinson, who is also a member of the RBA board, said some of the hysteria surrounding the national accounts was "really over the top".

Dr Gruen also told the hearing that the Australian dollar needed "to fall a fair bit more" over time to help the non-mining sectors of the economy to grow more strongly.

The Australian dollar dropped to around 94.50 US cents on Thursday, its lowest level since September 2010.

The currency has fallen from around 103 US cents in less than a month.

Dr Parkinson told the hearing that Europe still poses the biggest risk to global growth.

He also expects Australia's number one trading partner, China, will face a number of significant challenges.

But he believes from Australia's perspective, a China that is able to grow over the next decade in the six to eight per cent range consistently is a "better place" than a China that is trying to grow at 10 to 12 per cent.